Editor's note: This popular story from the Daily Briefing's archives was republished on Dec. 13, 2019.
When Brigham and Women's Hospital officials realized the hospital was projected to run in the red for both fiscal years 2017 and 2018, the organization launched an "unprecedented cost-cutting drive" to save $50 million within the hospital's $2.6 billion annual spending budget, Ron Winslow reports for STAT News.
According to Winslow, Brigham for three months granted STAT News "unusual access" to the hospital's cost-cutting approach, providing insights into "how one of the nation's leading hospitals is confronting the daunting financial and marketplace forces buffeting academic medical centers [(AMCs)] across the U[nited] S[tates]."
New challenges facing AMCs
According to Winslow, AMCs provide highly specialized care "to treat the sickest patients." They serve as the foundation of U.S. biomedical research and are critical in training new providers.
However, while such organizations have always been "expensive to run," they are facing more challenges in recent years, Winslow writes, including lower reimbursements, increasing drug and care costs, an aging population with complex care needs, and the shift of "routine and often more profitable cases," such as knee replacements, to community hospitals.
In response, several AMCs, including Mayo Clinic and Cleveland Clinic, have launched cost-cutting initiatives. And Partners HealthCare, the hospital system that operates Brigham and Massachusetts General Hospital, recently announced a plan to cut costs by $500 million over three years. Under that plan, Brigham will have to reduce costs by roughly $150 million, Winslow writes—which means the $50 million in reductions so far "is just a start."
That said, Brigham "isn't calling any of this a crisis," Winslow writes. Brigham in 2016 reported $2.7 billion in revenue, and on average, the hospital fills about 94 percent of its beds. Some of the financial constraints, Winslow writes, can be attributed to major capital projects, including the new $600 million Building for Transformative Medicine, which they expect to see returns on.
Turning a hospital's finances around
Still, Brigham EVP and COO Ron Walls acknowledged that "it was very clear we had to become a much leaner, more efficient organization."
Armed with the lessons learned from a 2016 initiative to maximize OR use, hospital executives began meeting to discuss cost-savings measures throughout the hospital. According to Winslow, Brigham officials identified and implemented two key measures:
1. Buy out senior staff—including nurses
A key facet of Brigham's cost-cutting plan was a voluntary retirement buyout offered in June to more than 1,000 employees, including 410 nurses, who were at least 60 years old, Winslow writes. The offer included one year's worth of base salary paid into the employee's retirement account, plus medical benefits for those who under age 65 and ineligible for Medicare.
Overall, 816 employees opted to take the offer, including 232 nurses, or about 7 percent of the nursing staff. To avoid any disruptions, about 300 retirees agreed to stay on for a few months beyond Oct.1. The hospital also has hired 250 new nurses and is hiring an additional 141 nurses for newly established roles. Ultimately, the hospital also had to lay off 31 staffers because of changes in professional responsibilities, Winslow writes.
2. Taking a new approach to change
Brigham also cut costs by switching the hospital to a mattress pad used by all other Partners organizations. According to Winslow, Partners a few years prior had tested out several different mattress pads, picked a winner, and negotiated a volume discount on their order. Every Partners organization opted to take the new mattress pad—except for Brigham, where nurses preferred to retain the pad they were using.
Walls asked the nursing department to again compare the two mattress pads, and when nursing leadership said there wasn't a significant difference between the two, Walls shifted to the Partners pad. That mattress pad, at one-third the price of Brigham's preferred option, saved the hospital $400,000 per year, Winslow writes.
Walls said the original decision not to switch mattress pads "was about allowing an individual part of the system the autonomy to opt out just because it wanted to." He added, "Those are the kinds of things we have tightened down."
'Much leaner, more efficient organization'
Ultimately, Brigham found a total of $41 million in savings for fiscal year 2018, Winslow writes, and they're gearing up to save another $50 million under the Partners' initiative.
Reflecting on the overall cost-cutting experience—and looking ahead to additional cost-cutting with Partners—Walls said, "This wasn't about ordinary cost-cutting. It was very clear we had to become a much leaner, more efficient organization" (Winslow, STAT News, 9/28).
Zooming in on the Antares moment: How to sustainably control costs and grow revenue
In many ways, hospitals and health systems are comparable to stars. Take, for example, Antares, a red supergiant that shines brightly from far away, but faces a significant problem upon closer inspection: it is nearing the end of its life. It is rapidly devouring all its fuel to burn so brightly and will eventually collapse. Similar to Antares, many hospitals and health systems appear healthy from afar. But with their operating expenses now outpacing their operating revenue, they may be headed downhill.
Read on to learn how Antares Health System can reverse course and ensure a bright—and sustainable—future.